Look for Mickey to get Shanghai-ed in September

Did you catch that story late last month about Shanghai Disneyland? Wen Wei Po, a Hong Kong-based newspaper, reported that " ... after 10 years of tough negotiations ..." the Walt Disney Company had finally cut a deal to build a theme park in China's business hub.

What was fascinating about this particular press report was how quickly the Mouse & Chinese government officials moved to deny it. Within hours of this story hitting the wires, a two-tiered denial was making the rounds. With Chen Qiwei, the spokesman for Shanghai stating that this " ... project still needs central government approval and Shanghai will obey Beijing's decision." While Disney spokeswoman Alannah Hall-Smith said -- in an extremely terse statement -- that " ... there is no agreement and there is no deal."

Not this month, anyway.

But two months from now ... To be specific, in September, after the 2008 Olympics are over and China is basking in the glory of having successfully pulled off this enormous event. Then -- and only then -- will Mickey & central government officials reveal that Shanghai Disneyland is actually a go. That -- barring any construction delays -- this $3.8 billion project (with its three hotels as well as the largest Magic Kingdom in the world) could be open for business as early as 2012.

Mind you, it's not as if the Mouse has been all that secretive about its lengthy negotiations with Shanghai officials. Back in February of 2006, Bob Iger accidentally sent Disney's stock price soaring when -- in an telephone interview with a Hong Kong cable news station -- he said that " ... On theme parks, we have ongoing discussions, ongoing and ongoing and ongoing with the Chinese government about a park in Shanghai."

Later that same year, then-Disney Company Chairman George Mitchell -- while being interviewed by the China Daily -- admitted that these talks were continuing. "(To date), our discussions have been with Shanghai officials ... and now (we're talking) with the national officials."

And among senior Mouse House officials, it's well known that Iger is eager to get a second theme park up out of the ground in this country. What with its burgeoning middle class as well as those 290 million consumers under the age of 14 ... The financial opportunities that Mainland China represents to the Walt Disney Company are truly, truly huge.

But -- then again -- so are the risks. Whereas Hong Kong Disneyland was built right next to the most westernized city in China ... Shanghai Disneyland (Which is to be built on the southernmost outskirts of that city about 20 minutes away from Pudong International Airport) is virtually out on the frontier. In yet another interview in 2006, Bob talked about how " ... the sheer lack of infrastructure" made projects like this " ... not for the faint of heart."

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This was one of the main reasons that Shanghai Disneyland's negotiations dragged on for as long as they did. In order for this theme park / resort project to finally go forward, China's central government first had to agree to drop some very serious coin in the Pudong District. This includes building a brand-new railway system that will (in theory, anyway) deliver people from more that 50 cities in the Yangtze River Delta straight to Shanghai Disneyland's door. Not to mention adding a Shanghai Disneyland-specific exit to the A20 as well as making sure that all the necessary utilities (i.e. electricity, water, sewerage lines, etc.) are in place before construction begins on this 6 square kilometer project. All told, the Chinese government has allegedly agreed to spend upwards of $40 billion in & around Shanghai in order to help make this next Magic Kingdom a reality.

"And why is China's central government willing to spend this sort of money on Shanghai Disneyland?," you ask. Because they're going to get far better terms from Disney on the Mainland China Magic Kingdom project than the folks in Hong Kong got. Though the exact terms of this deal are now under wraps (and will likely remain so for years yet to come), according to press reports, "... Disney will provide technology and capital for a 51-percent stake in a joint venture with Shanghai's government-backed Lujiazui Group company, which will contribute land near the Pudong International Airport."

As for Shanghai Disneyland itself ... Given that Iger -- as justification for the Walt Disney Company's $7.4 billion acquisition of Pixar Animation Studios -- cited a parade that he watched at Hong Kong Disneyland's opening ceremony. Where ...

"I was ... standing with a few thousand other people watching the parade go by. And I realized that there wasn't a character in (that) parade that had come from a Disney animated film in the last 10 years except for Pixar."

Taking that into consideration (More importantly, since this will be the first Magic Kingdom that WDI has been able to design since that Emeryville-based entertainment company was acquired) ... According to Imagineers that I've spoken with, Shanghai Disneyland will be the most Pixar-centric theme park on the planet.

How so? Well, according to a preliminary listing of rides, shows and attractions that have been proposed for this park (Which are -- of course -- subject to change between now and this project's 2012 opening date), Woody, Jessie and Bullseye will ride herd on Frontierland while Shanghai Disneyland's Autopia will serve as the centerpiece of a brand-new "Cars" -themed part of this park.

Don't get me wrong. There will be Disney characters in Shanghai Disneyland. I'm told that Captain Jack Sparrow will stagger around a Pirates-centric version of Adventureland while Rapunzel & her tower will ... Well, tower over Fantasyland.

But as for the rest of the details on Shanghai Disneyland ... Those will have to wait until after the 2008 Olympics are over and the Walt Disney Company & the Chinese government officially make their announcement. So ... See you in September.

Disney has made some horrible blunders in the past, but if this project moves forward, it may go down as the worst of them. Disney first needs to get its (Mouse) house in order in the United States and Europe. Guest service, maintenance and even theme park offerings (like entire pavilions at Epcot) are disappearing stateside; an entire theme park has to be retooled in Anaheim; prices are going sky high even as the country enters what could be a remarkably difficult recession; and yet Disney is doing nothing about it. Though its own skewed "surveys" would never tell you such a thing, there is little doubt that, in reality, guest satisfaction is diminishing while prices are rising. And Disney has yet to pay the piper for its over-saturation of the "best kept Disney secret," the Disney Vacation Clubs, which are seriously overbuilt and constructed on a house of cards (how many "owners" bought in by taking out home equity loans that they are having trouble repaying)?

Meanwhile, over in France, an entire theme park is among the most poorly performing major parks on the PLANET, outdone only by Disney's first, astonishingly miscalculated blunder in Hong Kong.

Disney's theme park division is in a sorry state that may soon get much, much, much worse -- the whole thing is built precariously on the notion that guests can never pay too much for increasingly mediocre products. Disney has even lost, it seems, the ability to create a "Disney" attraction, judging by the recent projection-based "rides" at the Epcot, Disney's Hollywood Studios, Magic Kingdom and California Adventure ... where, it should be noted, so far all of the money spent on shoring up this ill-fated effort has yet to pay off. Disney's latest theme park "strategy" defines throwing good money after bad.

So, now comes this? I am seriously losing faith in Disney management, which tends to follow the MBA mentality that more revenue is what counts, even if the business is driven into the ground to get it. This course cannot last a lot longer, and at some point soon Disney's stock price will begin to show it. But chasing dollars is a fool's errand, and the only course correction will come when a balance of creativity and financial practicality takes over again. Disney used to be the best in the WORLD at theme-park management, hotel experiences and vacation packaging, but it has given up those lofty perches for the sake of short-term gains. My guess is that within six to eight quarters, we'll see some serious discomfort on the theme-park side.

It's not stated here if Disney intends to license out a Shanghai park. But ultimately, the other shoe will drop in China, and American companies will realize that a) Chinese aren't as enamored of Western culture as we hope they are; and b) even if they were, when $3,561 a year (according to China daily), $102 for a family of three is a lot to spend on admission. An awful lot. The economics are just not there. Why Disney remains so insistent that China is some great frontier is astounding.

Mr. Iger, Mr. Rasulo -- tend to your knitting. Fix your existing parks. They are in desperate need of help. Then, five or 10 years from now, look to China. For now, look to Florida, California and France.

Taking the above comment into account (and there are major boulder-sized grains of truth in it, no doubt) the issue re. China is simple: The market is huge, and if Disney doesn't go proactive to get it, somebody else will. I don't think the park itself is truly the main "plum" for The Walt Disney Company dollars-and-cents/yuan-wise. I think the idea is to use the park (parks, including Hong Kong) to promulgate the Disney characters, Pixar or otherwise, and help the huge Chinese population 'catch up' to the rest of the world's love affair with Mickey & Co. so that they can THEN be sold plush toys, teeshirts, and the rest of the massive merchandising wagonload of stuff. And since a lot of it is actually MADE in China these days, the economies of lower transit/fuel costs in getting the goods to market involved make serious sense, too. Hence the 51% stake, a reversion to the old Tokyo formula that the company once said it'd never, ever do again (ho ho ho--when Disney brass are concerned, NEVER say never again is the rule)

So...its not about the park. Its about the CULTURAL "invasion" or...dare we say it in China..."revolution!"??

However, the big issue I take with the article isn't that--it is the presumption (by either Jim or Disney) that somehow the Olympics are a slam-dunk to be a huge success. Between issues of smog, protest suppression, surveillance of athletes and guests, massive security crackdowns and...oh yeah, that itty bitty place called Tibet...these Olympics are by no means a sure thing...and it remains to be seen whether a USA caught up in financial worries, high gas prices, and a major election will bother to tune in to their ever-decreasing-market-share options on the networks to watch the thing, too.

Of course, the other issue that has ALWAYS been a major one for copyrightable intellectual property in the unfree world that is still what China is, don't forget, is.....whether the character stuff will get...uh..."shanghai'd" by the People's Republic's new and wild-west-ish capitalists. That might just cut into the take for Burbank's share, too.

This is definitely a high-stakes gamble. I won't claim to know in advance whether it will be successful. Who was it who said "Never fight a land war in Asia"? While this will obviously not move forward unless the two sides are on good terms, the magnitude of the undertaking ($40G in infrastructure) brings that caution to mind.

Maybe while Disney is busy building in China, we can get the Oriental Land Company to rebuild the US parks. Surely one is no less sensible than the other.

JohnWayne, what has yet to be proven -- and Disney hasn't proven it, not even remotely -- is that the Chinese WANT to be Western-style consumers. It's worth reading this article from The National (one of several that have appeared recently) on the South China Mall, a disaster of massive proportions:

Particularly noteworthy here is the assessment that "At present, fewer than 10 per cent of China’s population of 1.3 billion have enough discretionary income to count as 'middle-class.'" Disney would argue that that still means 130 million people "qualify." True. But of those 130 million, now consider how many don't know Disney, object to Western culture (don't forget that, despite everything, China is STILL a Communist country), or don't have children or families. The market is relatively small, and the assumptions that have to be made to justify large-scale investment in China are huge. Disney has already made one mistake in China. Is there MORE good money Disney wants to throw away? Apparently so. Why aren't investors fuming?

I think that this makes more sense that pursuing a park in Dubai. (Dubai really intrigues me but I can't fathom a large percentage of people traveling there.) You can not ignore one billion plus potential guests already in China. Disney will not need to rely on any foreign tourists to make this park work.

Plus, John Wayne hit the nail on the head. This is more about merchandisng than anything else. 20 plus years ago there was a statistic that Mickey Mouse watches sold-out Mao watches. There is an entire generation in China that has grown up on Mickey Mouse and that translate to tremendous interest in Disney. A theme park is only logical to stimulate continued interest in the Disney brand.

With my limited knowledge of China I beleive that this a better location than Hong Kong simply because I think that this will provide easier access for the general public, the blue collar worker per se. I don't think that many Chinese have the resources to travel to an expensive city like Hong Kong. If the infrastructure is well done there will be much more appeal for a mainland park.

I see the parallels between an emerging China and a post-war America as staggering. For instance, outside of Southern California in the mid 1950's most families did not have the means to take a Disney vacation. That changed dramatically in a just a few years time. Disney needs to be poised to capitalize on that notion with a Chinese mainland park.

He get's them from the same place he get's his criticism of TSMM, his own ignorance and prejudice. China is the fastest growing economy in the world and has by far the largest population. If Disney doesn't strike now they will be left in the dust and looking stupid. This isn't about NOW. This is about ten years from now.

My criticism would be that they're building yet another Magic Kingdom style park. Way to be creative and build something new.

The idea that because China is a communist country (which it is, of course--though maybe more in the totalitarian one-state/one-party model than the purely economic variety these days) their people are somehow anti-western culturally is just plain silly. I remember as a young student visiting the USSR in the pre-Glaznost days and, like everyone else who did so from the West, getting a high premium for my Levis and other cast-offs from the West. In fact, one member of my group on my first Moscow trip got some Coca-Cola from the U.S. Embassy there and gave it as a frienship "tip" to the "floor momma" concierge lady at our hotel--she was going to save it for the weekend when her daughter would be visiting from the countryside, so treasured was this simple can of Western Culture to her.

However, there may actually wind up being an interesting technology exchange involved in this deal, too. I just found this story linked on Drudge saying that the Chinese have announced plans to "artificially change" the WEATHER for the Olympics if the God they do not believe in doesn't comply with nice days and clear skies. Imagine what that kind of tech could do in Florida (although it WOULD depress the sales of those instantly-appearing Mickey ponchos at WDW that pop out of the spaces below the sales counters every afternoon in time for the daily sprinkles!)

RE. the location in Shanghai vs. the current Hong Kong park--I remember there being an issue at the opening of transportation time for the average Chinese worker who had only a very short vacation and, in most cases, would have to spend over a day of it each way getting to/from the HK park. It also meant that since the whole country takes that vacation together and that they don't really have "weekends" or the staggered time off that Western workers do, the park was either overcrowded to the breaking point or empty and seldom anything in between. THOSE kinds of issues are more what Disney should be negotiating with the Chinese, not competition issues re. Universal.

Jables and Tuckenie, I'm actually referring to The Walt Disney Studios Paris, which failed to make the top 10 of all theme parks in the world, despite being right next door to the fifth most-attended park. In 2006, attendance at that park was 2.2 million people (source: Park World, April 2007), which, with a 365-day-a-year operating pattern, translates to 6,027 people a day. Compare that with average daily attendance at Disneyland Paris of 29,000 a day (source: ibid), or average daily attendance at Hong Kong Disneyland of 15,342 people a day (source: South China Morning Post).

More to the point, now that the parks are becoming "national"/regional draws (which really ISN'T happening, judging by foreign attendance at Disneyland and Walt Disney World, but that's what Disney would want you to believe), it is fair to draw a correlation between those parks and Tokyo Disneyland or The Magic Kingdom. In 2007 (source: Themed Entertainment Association/Economics Research Associates Attractions Attendance Report), Tokyo Disneyland had average daily attendance of 38,098, with Tokyo DisneySea right behind at 34,008; The Magic Kingdom saw daily attendance of 46,739. California Adventure, conversely, had daily attendance of 15,561 ... so, Walt Disney Studios Paris is attracting less than HALF of the failed DCA, while Hong Kong Disneyland is only doing about as well as DCA.

Meanwhile, as Randy Savage pointed out, India's population is 1.1 billion people; the population of the 12 countries in South America is 371 million, or more than the United States. Both of these areas are being ignored by Disney.

The China situation has far deeper roots and reasons than "going after" the consumers there -- and I can't claim to understand all of the political or economic reasons. However, as UPI reported on July 14 (source: "China foreign investment soars," United Press International, July 14, 2008), most of this investment is speculative. As of yet, few if any companies have recognized meaningful return on their investments in China.

Please do not forget (and this is not a political but a factual statement) that China is a Communist country. Investment can be halted at any time by the government. As we saw in 1989, the government has the ultimate authority to crack down in any way desired, and as MIT Technology Review reported on July 1 (source: "Search Engines' Chinese Self-Censorship"), when referring to rampant Internet censorship, "The question in China is made very complex in that there is a combination of tacit government guidance in what one should block, and there's also a lot of guessing by the companies." There are significant barriers to doing business in China, which has ideological viewpoints that are very contrary to the United States. Being reared in that society doubtlessly leads to a very different view of consumerism, as seen by the failure of the South China Mall (see above for reference).

JohnWayne, you raise an excellent point about the pre-Glasnost Soviet Union, but there is a tremendous difference -- the USSR clearly wanted and intended, long-term, to abandon its Communist political party, but China has made no overtures to that.

China is an infinitely more complex society than the United States, Europe or even Japan. There are forces at work that American business people, no matter their experience, have very little capability of understanding -- and I speak as someone who works for a company that is exploring business opportunities in China, and I am involved deeply in that decision-making process. For our company, there remain a myriad of unresolved and uncertain issues, not the least of which is whether any investment in China can, long-term, realize any value. This has yet to be proven.

And while it is interesting to see Disney weigh this possibility, I come back to my original argument -- Iger, Rasulo and Company should finish what's on their plate before moving on to dessert, no matter how appealing it may seem ... and they should also be wondering about that burning smell coming from the oven.

I wonder if the Chinese Government owning 49% will make a dent in the huge piracy of Disney products there? People are familar with the characters - I've seen knock offs shown in several themeparks as characters and artwork, so I don't think the arguement that Disney needs to 'prime the pump' to get the population familar with Disney characters is true at all, they've already seen the pirated videos you know!

Irv Thal....comparing USSR to the People's Republic of China you said:

"the USSR clearly wanted and intended, long-term, to abandon its Communist political party, but China has made no overtures to that."

WHO are you talking about? The PARTY in the USSR had no intention of going away--even in the Gorbachev days long after my early visits. And if you mean the PEOPLE...well, what do you think Tien An Min Square was about? Standing in front of tanks because you have "made no overtures" to ending the dictatorship?

We must agree to disagree, alas, but I think the facts are clear.

Meanwhile...the issue of comparing US parks to the "regional" ones abroad is interesting and the attendance figures you present tell their tale. However, another memory from an Eisner press confab back at the opening of the original "Fantasmic!" at Disneyland when there were many queries about the "second gate" that became DCA: Eisner was at great pains to point out that the vast majority of Disneyland's business was from locals or semi-locals and thus they had to keep opening new attractions every year both to compete with the other local theme parks and to re-attract their core audience. He mentioned this in comparison to WDW being about 80% visitors from long distance or abroad. And all of this brings us back to issues of transportation ease and expense:

IF (a) HK Disneyland proves the market wants this kind of thing but (b) also proves that location determines accessability, then Shanghai makes more sense...as would, I certainly agree, an India park (with that having the HUGE advantage of actually having an ENGLISH-speaking population and employee base, as anyone who's ever waited on hold for an "american" customer service agent in Bombay can attest) and perhaps one in South America....but also, one must ask if the cost of planes, trains and automobiles in the US will make Disneyland even MORE about locals (which will further degrade DCA attendance, one HUGE problem having been the choice of theme in the first place--a park whose neighbor draws mostly Californians is hardly exotic to those who have been visiting the REAL Yosemite, etc. etc. all their lives) AND whether WDW will follow suit to draw largely from the southeast...which, who knows, might suggest the possibilities of an indoor or mostly indoor Disney park in Chicago or Michegan or Minneapolis or even St. Louis.

Meanwhile, let's remember that one of the official reasons given for Paris over other European locations was that it was "within X miles for over 80% of Europeans" etc. etc. etc. The fact that when it did open people in the UK and elsewhere were finding it cheaper and a better value to fly to Florida on package tours than to go to Paris of course made that physical location issue moot in the overall economic scheme of things.

"The fact that when it did open people in the UK and elsewhere were finding it cheaper and a better value to fly to Florida on package tours than to go to Paris of course made that physical location issue moot in the overall economic scheme of things."

And it still does. Very much. Nevertheless, increasingly Disney's U.S. theme parks have become locally driven "destinations," which has reduced their overall brand potential -- hence the need for the heinous "Disney Parks" moniker that Rasulo tried to apply last year. Despite a constant flow of overseas tourists who find themselves suddenly rich when arriving in the U.S., Disney increasingly markets its parks to locals and finds attendance driven by locals.

The result? Guests who visit more frequently, find less need to buy, lowering per-capita spending, and resulting in the need to constantly increase the price of a "basic" ticket in order to keep artificially low the cost of the "annual passes." The other unintended result -- guests who have less respect for the park, because they haven't made the effort to spend the weekend (or week) there but instead look to the parks as diversions for a few hours or a day.

All of this absolutely matters to the Shanghai "decision," since it boils down to creating more parks around the world, diluting the "vacation value" of the parks, making them more into local attractions that attract a more spendthrift, less "wide-eyed" visitor. It's the Disney Store problem on a large-scale basis ... the more parks you create, the less special they are. The less special they are, the more the competition looks equally good. And the more the competition grows, the more need to cut costs and reduce capital expenditures, resulting in lower quality, and the more need to raise prices. It's a vicious cycle. But Disney, despite its claims, has shown it really doesn't think "globally" -- it just thinks about revenue cycles. That's it for me on this subject. Thanks for indulging me.